Canada cautious on liberalizing foreign investment

Randall Palmer, David Ljunggren, Louise Egan

6 Min Read

OTTAWA (Reuters) - Canada will be cautious about liberalizing foreign investment rules for sensitive economic sectors because it’s very hard to reverse a decision once it’s been made, Industry Minister Christian Paradis said in an interview on Monday, meanwhile insisting that Canada remains open to foreign investment.

“When you decide to go with these kinds of reforms, you cannot ratchet down after that. You can ratchet up but not down,” said Paradis, who is the government minister responsible for foreign investment rules.

Canada has strict rules governing foreign stakes in industries such as banks, telecommunications and airlines, as well as more general tests to determine if foreign takeovers are beneficial to Canada.

But the issue remains controversial. Paradis’ predecessor unexpectedly blocked a 2010 foreign takeover offer for fertilizer giant Potash Corp, and the government last year spent several months mulling its response to an offer for oil company Nexen Inc from state-owned Chinese oil company CNOOC Ltd.

Ottawa eventually allowed the Nexen takeover, but imposed strict new restrictions on future bids by state-owned companies, particularly for companies in the Alberta oil sands.

One Canadian company widely viewed as a potential takeover target is BlackBerry, which is struggling to compete against Apple’s iPhone and devices using Google Inc’s Android operating system.

Paradis said he hopes BlackBerry will remain a national champion. But he said he did not know what would happen to the mobile device maker, given the unforgiving competition in the global telecommunications industry.

“We never know what can happen but I’ve said - and I truly believe this - I hope BlackBerry will continue to be a Canadian champion in the world, that it grows organically,” Paradis said in his office in the Industry Canada building in Ottawa.

“This is my opinion here. But that being said, we don’t know what might happen. The market is very aggressive. When you talk about the telecoms sector ... this is a very, very aggressive sector.”

The head of China’s Lenovo Group Ltd told a French newspaper last week that the firm might consider an acquisition of BlackBerry at some point in the future.

Paradis said the Canadian government would examine any Lenovo bid using its national security guidelines, which are designed to block foreign governments from gaining control over strategically important firms.

“As the industry minister I don’t want to send a signal and I don’t want it to look like I prejudged a deal or not,” he added.

Some of the government’s foreign investment policy has been guided by a 2008 official report that urged Ottawa to liberalize, or consider liberalizing, foreign investment rules in telecommunications and broadcasting, the airline industry and in uranium mining, and to allow mergers in the financial industry.

Paradis has lifted restrictions on foreign investment in telecommunication providers with less than 10 percent of the market. But he noted that the 2008 report advocated a broad review before opening the sector up further or allowing more foreign investment in broadcasting.

“We are not there at this point,” he said.

However, Paradis hinted at the possibility of a bigger opening to foreign investment if current measures to boost telecom competition fail to bring lower prices and more choice for consumers: “We cannot guarantee we will achieve what we want to achieve in terms of goals, when you talk about competition.”

Paradis said he was “very happy” to see growth in the hard-hit manufacturing sector and noted that he was hearing fewer complaints recently about the strength of the Canadian dollar, which hurts exporters.

“We used to hear that more in the past than now, to be blunt,” he said.

“Wherever I go, we all agree that it’s unlikely that the Canadian dollar will go down as it used to be, so if people are relying on this to increase their competitiveness, it’s not the way to do it,” he said. “We should not rely on this.”

The Canadian dollar rose by nearly 45 percent between a trough in early 2002 and a peak in late 2007, but has held steady at close to parity with the U.S. dollar in the last few years.

Paradis noted that manufacturers have benefited from a measure allowing them to accelerate writedowns on capital investments, but he could offer no guarantees the upcoming federal budget would extend the program.

“It added a lot of leverage in the past and I heard a lot of good comments in the multiple roundtables in the last months, for sure,” he said.

Asked about the government’s likely response to a possible foreign bid for a company such as natural gas producer Encana Corp, Paradis pointed out that bids by state-owned firms would still be evaluated for the degree of influence a company has over the industry and the sector it is involved in, and the degree of influence the foreign government has over the company.

Encana said last month it did not believe that revised government rules on foreign takeovers would prohibit it from being acquired.